Average city size and economic growth

Abstract

This article examines the link between average city size and aggregate economic growth in a total of 114 countries for the period between 1960 and 2010. The analysis—which includes pooled two-stage least-squares (2SLS), panel data analysis, system generalized method-of-moments (GMM) estimator and an instrumental variable (IV) approach—finds that, in contrast to the prevailing view, there is no universal positive relationship between average city size and economic growth and that the results vary between high-income and developing countries. In high-income countries, there is consistent evidence of a positive albeit decreasing link between city size and economic growth. In contrast, the relationship does not hold for developing countries, for which most of the coefficients display insignificant results or point towards a negative connection between both factors.